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Foreign subsidiaries of U.S. companies now prohibited from engaging in transactions with Iran

In August of this year, President Obama signed the Iran Threat Reduction and Syria Human Rights Act of 2012. This law required presidential action to implement certain restrictions, and today, on October 9, 2012, President Obama issued a new Executive Order (EO): “AUTHORIZING THE IMPLEMENTATION OF CERTAIN SANCTIONS SET FORTH IN THE IRAN THREAT REDUCTION AND SYRIA HUMAN RIGHTS ACT OF 2012 AND ADDITIONAL SANCTIONS WITH RESPECT TO IRAN.”

Effective immediately, Section 4 of the EO exposes U.S. parent companies to liability for transactions by non-U.S. companies that they own or control. Non-U.S. companies that are owned or controlled by a U.S. Person are now prohibited from engaging in transaction with Iran, as if that non-U.S. company was itself, directly subject to U.S. jurisdiction. In the event that a foreign owned entity engages in a prohibited transaction with Iran, the U.S. parent company, not the foreign owned entity, is subject to penalty.

The EO does contain a wind down period, enabling U.S. Persons to divest or terminate their Iranian business by February 6, 2013. This date is consistent with the timing that was originally published in the Iran Treat Reductions Act. In anticipation of substantial interest, the Office of Foreign Assets Control has already released a series of FAQ’s discussing Section 4, which are available here.

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